Warner-Lambert, Pfizer to talk merger; Rise in Warner's stock suggests investors expect hostile bid to prevail; Pharmaceuticals


MORRIS PLAINS, N.J. -- Warner-Lambert Co. said yesterday that it would hold merger talks with hostile suitor Pfizer Inc., moving away from a proposed $54 billion friendly combination with American Home Products Inc.

Warner-Lambert said Pfizer's stock offer of $92.18 per share is "better financially" than the $63.59 per share value of the American Home merger agreement. Pfizer's hostile bid in November initially topped American Home's offer by $9 billion and since then the gap has widened to $24 billion.

Lodewijk de Vink, Warner-Lambert's chief executive, was under shareholder pressure to consider Pfizer's bid as American Home faced billions of dollars of liability over its diet pills once used in the fen-phen combination. Warner-Lambert stock was trading well above the American Home offer, signaling that investors expected Pfizer's bid to prevail.

"In discussing the Pfizer deal, the economics are just compelling," said Marty Bukoll, an analyst with Northern Trust. "The heat has been building under de Vink and the people at Warner-Lambert realize how the stock prices are going."

Warner-Lambert shares rose $5.0625 to close at $91.875 on the New York Stock Exchange, close to the value of Pfizer's offer.

Warner-Lambert makes Lipitor, the top-selling U.S. cholesterol drug with 1999 sales of more than $3.6 billion. Pfizer helps market it and shares the profits. Warner-Lambert had sued to cancel the sales agreement after Pfizer made its hostile offer in November.

Opening talks is "good news for both companies because it settles the issue" and would resolve any investor anxiety over Lipitor, said Hemant Shah, an independent drug-industry analyst.

A Pfizer-Warner-Lambert combination would leave American Home without a partner after three attempts to merge. The company called off plans to merge with Monsanto Co. in 1998 and earlier held unsuccessful merger talks with SmithKline Beecham PLC.

While American Home stuck with the Warner-Lambert transaction, the company viewed as perhaps its best next merger partner announced its own planned merger. Pharmacia & Upjohn Inc., led by a former top American Home executive, Fred Hassan, agreed to a $23 billion merger with Monsanto Co. in December.

American Home stands to collect a $2 billion breakup fee if Warner-Lambert and Pfizer agree on a combination. That would go a long way toward paying American Home's fen-phen liability.

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